It was three years ago last week that outspoken private equity industry stalwart Jon Moulton stormed out of Alchemy Partners, the UK buyout firm he founded and which he had led for 12 years, after a heated row.

Moulton: turnaround model was vindicated by Better Capital

The rift was caused by a disagreement over the firm’s strategic direction. The majority of Moulton’s colleagues wanted the company to pursue a financial services investment strategy. Moulton believed the future was in turnaround investments.

Feelings ran high. In 2009 Moulton, then aged 58, gave notice that he would retire the following year, but after a power struggle in which he lost to Dominic Slade, his successor, he left immediately.

Moulton described Slade, aged 38 at the time, as the wrong choice as managing partner. On his departure, he sent a strongly worded letter to investors saying that the decision to focus on financial services meant that a “spectacular opportunity” had been wasted to capitalise on the firm’s “perceived greatest strength” – turnaround investments.

He then called on investors to wind up the business.
Alchemy was not wound up, but has continued with a much lower profile. By contrast, Moulton promptly launched Better Capital – a UK-listed turnaround investor, which has since acquired the UK assets of publisher Reader’s Digest, luxury yacht maker Fairline and UK high street retailer Jaeger.

Just months after Moulton’s departure, Alchemy decided to move away from financial services investments, concentrated on generating exits from the annual buyout funds raised between 1997 and 2009, and moved to a more traditional special opportunities debt and equity fund.

This fund – Alchemy Special Opportunities – is now the core part of the business and raised £500m in April last year. As part of the change, managing directors Ian Cash and Frits Prakke, two key executives in the special opportunities team, were granted a more substantial portion of the firm’s return on investments, known as carried interest.

Alchemy declined to comment on the precise reasons for the choice of strategy. A spokesman said: “While we continue to achieve some good exits from our original portfolio, our focus for new investments is firmly on debt and equity for European distressed situations.”

In May, filings at Companies House disclosed that the Alchemy Partners LLP – the top-level investment management team – had reduced its investment in Alchemy Special Opportunities LLP by 90% to just 10% while continuing to hold 25% of the voting rights.

A source close to the firm said the change was made for regulatory reasons, but declined to give details.He said the move did not amount to any significant change in economic interest.

According to one investor who had backed Alchemy in the last decade, prevailing economic headwinds arising from the global financial crisis prompted a change of heart that meant the firm would no longer pursue a financial services fund. He said he still held the firm and Slade in high regard, despite changes at the company and the furore surrounding Moulton’s departure: “They were more internal succession planning issues than anything else.”

The buyout industry says it has been difficult to gauge the success of Alchemy over the past three years. Sources say that its original plan to invest in financials was less than successful, prompting its change of approach and lower profile.

Meanwhile, Moulton said that his support for the turnaround model has been vindicated by Better Capital’s performance.

Better Capital’s 2009 and 2012 funds are both trading at a premium to net asset value. Last week shares of Better Capital PCC were trading at 148.25p, as of September 4, while the net asset value of its 2009 fund was 123.81p at June 25 this year.

The firm’s BC12 shares are trading at 117.75p, while NAV per share for its 2012 fund is 97.72p.
Moulton gained notoriety in 2000 after an audacious but unsuccessful bid to rescue the MG part of MG Rover Group when it was put up for sale by BMW.

In January, he announced the launch of another new venture, Greensphere Capital, which will focus on infrastructure investment. Moulton told Financial News last week: “So far we’ve been successful in attracting a lot of capital, we have highly rated shares and I think the investments we’ve made will make a lot of money.”

Asked if he would have handled his exit from Alchemy differently, Moulton said he “would have done it earlier”.